The most glaring gaps in today’s system
Looking at today’s system, the most glaring gaps are in AE: the self-employed, low paid, and gig workers with several jobs. There are around 5mn self-employed people, with at least 3mn without any sort of pension.
I would like to see HMRC auto-enrol all the un-pensioned self-employed into Nest or equivalent. Additionally, the vague concept of a ‘worker’ for AE purposes is too often the subject of major court battles – remember Uber? There must be new regulation to tidy this up.
The lost pension generation
Among the dozens of pressing pensions problems, low pension contributions and the chaotic ‘at-retirement’ market are of greatest concern.
Indeed, the 2015 freedom and choice reforms have left many consumers floundering at retirement. Should we reinstate a minimum income requirement of perhaps £15,000 a year, including state pension, before allowing people to do drawdown?
And a looming retirement shortfall for people in their 40s and 50s is only 10 years away. That age group may have missed the boat, too young to benefit from good final salary pension schemes and too old to make the most from AE.
Young people are also at risk from the number of jobs they will hold down in their lifetime, accruing dozens of pots.
AE pension contributions from both employers and their staff must rise, ideally this year. There has been far too much procrastination already, 16 years after the reforms the legal minimum employer contribution is still only a miserly 3 per cent.
Employers’ legal AE contributions should at least match their workers’ contributions with a 5 per cent pension contribution from the employer and 5 per cent from the employee.
Meanwhile, in the public sector (where DB pensions still predominate) the average employer contribution is at least 18 per cent. By contrast, most private sector employees are often on the bare minimum required by law – 3 per cent. Is this a sensible pension policy?
Today’s retirees are often ‘lab rats’
Current DC retirees are all just human guinea pigs in a giant experiment on drawdown; only one in 10 take advice yet 9mn people will be coming up to retirement in the next decade.
Some retail charges can be as high as 2 per cent when you take into account the platform charge, the IFA’s charge and the DFM charge – this is often nicknamed 'pound cost ravaging'. Yet institutional products can charge as little as 0.35 per cent.
People are leaving workplace schemes at retirement for the sometimes spurious advantages of retail products, often because trusted workplace brands do not offer every single retirement bell and whistle.
One in four people struggle with numbers
Financial literacy is low. Financial Conduct Authority figures show about 25 per cent of people have poor numeracy – should they be left to their own devices at retirement?
